Various risks are expected to keep inflation from decreasing economists say after inflation increased to 5.6% in February from 5.3% in January. These risks are the weak economy, fuel prices, weather influence on food production and the volatile rand.
Matshego and Weimar say higher fuel prices will add to inflation in the next few months. Petrol prices increased by another 5.2% in March compared to February and by 6.5% compared to a year ago, while gains in global oil prices have offset the slight appreciation of the exchange rate, pointing to more fuel price increases in April.
They still expect the Monetary Policy Committee of the South African Reserve Bank to start its cutting cycle in July and reduce interest rates by 25 basis points at each of the three meetings in the second half of the year. Therefore, the prime rate will end 2024 at 11% from 11.75%, with two more cuts in the first half of 2025 taking it to 10.5%.
“The outcome was in line with our expectations but slightly higher than the consensus forecast of 5.5%.” Adequate soil moisture conditions made for favourable summer crop planting conditions at the end of last year, but insufficient and erratic rainfall, together with a heatwave during January and February, meant that the picture has changed as El Niño conditions bite.
Van der Linde says the February inflation print feeds into their above consensus forecast for inflation to average 5.2% in 2024.